Economic forecasts strike blow to Theresa May's Brexit deal
Theresa May’s campaign to sell her Brexit deal to sceptical MPs and a divided country ran into further difficulties when a string of official economic forecasts concluded that the UK would be better off remaining in the European Union.
The Bank of England said on Wednesday that GDP would have been at least 1% higher in five years’ time if the UK had voted to remain, while an official Whitehall analysis concluded that in all Brexit scenarios, including May’s final deal, the UK would be worse off.
Mark Carney, the governor of the Bank of England, added that in the worst scenario, an unlikely “disorderly no-deal” Brexit, the economy would contract by 8%, house prices would tumble by 30% and interest rates would rise to combat inflation.
“Our job is not to hope for the best but to prepare for the worst,” Carney said, as he described what could happen if MPs vote down May’s deal on 11 December, and the government and parliament cannot agree on an alternative by next March.
The official warnings will lead Jo Johnson, a pro-remain Conservative MP who wants a second referendum, to warn on Thursday that the economic credibility of the Tories was now at stake – while Brexiters accused the Bank and the Treasury of engaging in “project fear”.
“The Conservative party’s reputation for economic competence would be undermined by implementing a botched Brexit, especially one that the government’s own analysis suggests will cause economic harm,” Johnson will say.
Labour responded by tabling its own Brexit amendment rejecting May’s deal on Wednesday night. Jeremy Corbyn said: “Labour will oppose Theresa May’s botched Brexit,” adding that her deal “puts jobs, rights and people’s livelihoods at risk”.
The proposed amendment said the party was opposing May’s Brexit because she had failed to provide for a permanent customs union and a strong single-market deal. It would “therefore lead to increased barriers to trade in goods and services, would not protect workers’ rights and environmental standards,” the text added.
May, meanwhile, insisted at a combative session of prime minister’s questions that the country would be “better off with this deal” because the economy would still be growing, and accused Corbyn of having a vague Brexit plan of his own.
“What does Labour have to offer? Six bullet points. My weekend shopping list is longer than that,” May told MPs.
May and her leading ministers intend to highlight the advantages of her Brexit deal over the next fortnight, selecting a different issue each day.
The idea is to try to persuade sceptical MPs and the British public to back May in the vote on 11 December, which the Conservative chief whip, Julian Smith, confirmed on Wednesday night would take place after six alternative amendments had been considered and following five days of debate.
In its modelling, the Bank of England warned that even under May’s deal, described as a close economic partnership with Brussels, the British economy would be at least 1% smaller by 2024 than it would have been under a remain vote in May 2016.
Carney denied he was scaremongering and said the Bank was providing an analysis that was demanded by parliament. “We have to do it,” he said, saying the Bank’s task was to make the forecasts required.
Carney did provide some support for the prime minister’s Brexit plan when he said that May’s deal could see GDP increase by as much as 1.75% over the next five years. But he added that the economy was nevertheless in a worse position than it would have been if there had been a remain vote in 2016.
But officials also warned there were risks, and that if customs checks on UK-EU trade were introduced – although without a hard border in Northern Ireland – that would cause the economy to shrink by about 0.75% over the same period.
Angry Brexiters – many of whom are among the 94 Conservative MPs who have said they would vote down her final deal – lined up to attack the Bank, the Treasury and other government departments.
Jacob Rees-Mogg, the chairman of the hard Brexit European Research Group, accused Carney of talking down the pound, and failing to understand his role. “He is not there to create panic,” he said.
Hours earlier, a Whitehall analysis, produced for MPs in the run-up to the vote, concluded that the UK would be significantly worse off under five possible Brexit scenarios in 15 years’ time, including the Norway model thought to be favoured by some in the cabinet, and the Canada free trade model favoured by hard Brexiters.
Officials did not produce a scenario that matched May’s deal exactly, but the two closest models suggested that the economy would be somewhere between 3.9% and 2.1% smaller in 2035-36 when compared with remaining in the EU.
Philip Hammond, the chancellor, conceded that the UK would be worse off regardless after Brexit, saying: “If you look at this purely from an economic point of view, yes there will be a cost to leaving the European Union because there will be impediments to our trade.”
Under the worst-case, no-deal scenario, GDP would be 10.7% lower than if the UK had stayed in the EU in 15 years’ time. Under a Canada-style deal, supported by Boris Johnson and David Davis, the UK would be 6.7% worse off than remaining in the EU, the study concluded.
But under a Norway EEA scenario, favoured by some Tory remainers, GDP would be 1.4% lower in 15 years’ time, better than some of the forecasts for May’s deal, although in that model free movement of people from Europe would continue.
Officials were forced to compare the economic merits of the Brexit scenarios relative to staying in the EU after the government was forced to accept an amendment from pro-remain Labour MP Chuka Umunna and Conservative MP Anna Soubry in the debates on the finance bill last week.
“Ministers were forced today to publish analysis comparing different scenarios to our current arrangements. The data is clear: nothing beats the deal we have as members of the EU,” Umunna said.
Dan Sabbagh and Richard Partington